President Barack Obama's biggest Christmas wish of raising taxes on the rich isn't coming this year. Thankfully the season of giving won't be ruined by the federal government's appetite for more revenue.
Christmas often brings stories of selfless altruism. One holiday favorite in particular contains both a tinge of irony and a neglected lesson in economics. This lesson is crucial for understanding how standards of living are raised the world over.
Much to the joy of wealth redistribution types, it turns out that the real life individual who inspired Charles Dickens' famous character Ebenezer Scrooge was actually related to renowned free market economist Adam Smith. From The Scotsman:
The real "Scrooge", an Edinburgh merchant, could not have been more different from his literary counterpart.
But the gloaming of an evening in the Capital, allied with an episode of mild dyslexia suffered by Charles Dickens, has forever associated Ebenezer Lennox Scroggie with one of the Victorian author's most famous characters.
In life, Scroggie was apparently a rambunctious, generous and licentious man who gave wild parties, impregnated the odd serving wench and once wonderfully interrupted the General Assembly of the Church of Scotland by grabbing the buttocks of a hapless countess.
Scroggie was born in Kirkcaldy, Fife; his mother was the niece of Adam Smith, the 18th century political economist and philosopher.
In The Christmas Carol, Ebenezer Scrooge is portrayed as a stingy and greedy businessman. Dickens describes his mythical character as "...a squeezing, wrenching, grasping, scraping, clutching, covetous old sinner!" Mr. Scrooge gives little to nothing in direct charity and rebukes a couple of men from his place of business for requesting a monetary donation for the poor. He offers this infamous suggestion instead:
"If they'd rather die they better do it now and decrease the surplus population."
The character of Scrooge has been used to demonize those with wealth and who give little to charity for decades. Generations upon generations of children are spoon fed The Christmas Carol as a cautionary tale that one should give back to those less unfortunate if you posses the means to do so. While there is nothing morally or ethically wrong with voluntary charitable donations, the narrative surrounding Scrooge's supposed tightfistedness ignores the important role businessmen similar to Dickens' less-than-favorable characterization really play in a market economy.
Consumer demand is often lauded as an all-important indicator and driver of economic growth. Yet it's always prior production itself that makes consumption possible. The economic truth known as Say's Law tends to be defined as simply "there is no demand without supply." What this means is that in order for one to consume, one must produce first in order to obtain the funds, goods, credit, etc. to engage in a transaction. Even if someone in destitution were to be given a charitable donation, those funds must first come from the donator's previous production. The same applies to welfare payments via the government. Government can only redistribute what it first confiscates from those who produce. Though consumption makes up a far greater portion of the overall spending in an economy, production is always the key enabler of economic growth.
The fact that our world is dominated by material scarcity makes financing the only way to make production possible. Offset consumption allows saving to take place and funds be available for longer term production. Economist Ludwig von Mises explains:
Capital goods come into existence by saving. A part of the goods produced is withheld from immediate consumption and employed for processes the fruits of which will only mature at a later date. All material civilization is based upon this "capitalistic" approach to the problems of production.
Those saving-that is consuming less than their share of the goods produced-inaugurate progress toward general prosperity. The seed they have sown enriches not only themselves but also all other strata of society. It benefits the consumers.
Greedy capitalist like Ebenezer Scrooge are not the vile human beings they are often portrayed as by those on the left side of the political spectrum. By setting aside his own income and living rather minimally, Scrooge increases the amount of loanable funds to entrepreneurs and other businessmen who may seek to fulfill consumer demand. The amount of consumer goods becomes capable of increasing to drive prices down. Contrary to popular myth, scarcity will never be overcome by politicians fiddling with tax money. The only way to increase real wealth and the standard of living in society is through deferring consumption presently to enable future use.
Scrooge's business and personal practices are to be commended and replicated. Taken to its logical conclusion, the " we must have more consumption" doctrine leads to a depletion of resources to be used as capital goods. It is ultimately a policy of immediate satisfaction at the expense of future prosperity.
Keep in mind the necessary burden folks like Ebenezer Scrooge bear for all of us this holiday season.
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